The escrow process is moving along smoothly and then all of a sudden there is a bump, and it is looking like the buyer cannot close escrow on time. This can cause a host of problems; the primary issue being that the purchase contract contained a closing date upon acceptance and that purchase contract is legally binding. So, if the closing date is missed, the contract is in jeopardy of expiration. If the worst-case scenario occurs and the contract expires, there is no longer a legally binding contract giving the buyer the right to purchase the property.
There are varying reasons that can result in the delay of closing escrow. Unexpected delays with an appraisal, lender and underwriting issues, severe illness and even a divorce can result in delays. Generally speaking, most of the delays in escrow are a result of the lenders waiting on an appraisal or an underwriting requirement – also known as a condition to close. In speaking with several escrow officers, the vast majority of them have said the most common reason they see with delay in closing is a result of lender issues, and more specifically, when working with an out-of-area lender. Nearly every real estate professional will tell a buyer that using a local lender is far more advantageous to the buyer, especially when issues such as appraisal delays come into play. Local lenders know the market, have existing relationships with real estate professionals in the local industry and are better equipped to help when issues do arise.
The easiest and most direct remedy when a buyer is not able to close escrow on the contracted date is to get an extension of escrow addendum signed by both buyer and seller. Prior to doing this, it is important to understand why there is a delay and the timeframe needed to remedy the issue and close escrow. Be realistic with the time needed to close. Sellers are less likely to be gracious if multiple extensions are requested. While an extension seems easy enough, the seller may not be inclined to cooperate and extend. When working to persuade a seller to agree to the extension, it is important to have a clear explanation for the delay. In addition to an explanation and reasonable extension request, one strategy that tends to work well is for the buyer to offer to release the earnest money deposit immediately to the seller prior to close of escrow. This strategy should only be used if the buyer is certain that they can in fact close escrow. When a buyer releases the earnest money deposit, it is in effect a way for the buyer to instill confidence that the buyer is sincere about closing and help to remove the skepticism from the seller's mind. There is no greater show of intent to close than to release the earnest money as non-refundable to the seller.
Delays are not ideal, but the reality is that they do happen and more often than not in a real estate transaction, they are due to no fault of the buyer and seller. The best approach is to keep clear and continuous communication with all involved parties of the transaction. Communication is key to avoid raising doubts and keep the transaction moving forward.